What actions should Cathay Pacific (CX) take in order to deliver a profit of at least HKD 2.4 billion (USD 315 million) in reporting year 2018?Team 9 Consulting

While CX’s financial losses in 2016 can be attributed to the failure of their approach to fuel hedging, however this should not obscure the fact that CX requires further reform. Given CX’s shareholder structure and these should include reinforcement of their differentiation as a premium provider, and seeking concessions and support from the Hong Kong government

Fuel accounted for nearly 30% of CX’s total costs in 2016

Staffing accounted for 21% of CX’s total costs in 2016

CX passenger revenues have numbers have fallen by 10% in the last year

Landing fees, parking and route expenses accounted for nearly 16% of CX’s total costs in 2016

CX has lost HKD 8.5 bn in the last two years due to poor returns on fuel hedging

ACTIONS

1. CX need to actively differentiate away from the middle of the market

2. CX’s results have been significantly influenced by their approach to fuel hedging. Getting this right could save an additional HKD 8.5 bn. Doing it well could even generate a substantial profit.

3. Staff costs have been rising disproportionately, reassignments and redundancies could make substantial savings.

4. CX needs to capitalize on its position in Hong Kong as major employer in the region. Landing fees, parking and route expenses accounted for nearly 16% of CX’s total costs in 2016. Alignment with the local government to combat the cheaper deals from mainland China